AEI 2011: Building a better budget

In the last two weeks of this year, the AEI 2011 series will highlight the institute’s work that has made an impact, made a difference and made headlines over the past year.

All eyes were on AEI in April when House Budget Committee Chairman Paul Ryan (R-Wisc.) came to AEI to unveil his plan to cut more than $4 trillion from the federal deficit. Ryan detailed the “monumental choice about the future of our country” — where tough cuts and smarter savings measures would have to be enacted to truly put the country on “The Path to Prosperity.” It was one of the most-viewed events at AEI in 2011, and the Enterprise Blog post on his speech was the most-viewed blog post of the year. Revisit the full text of Ryan’s speech or watch the full event video as Congress continues to grapple with reining in the national debt.

MORE:Download the e-book of the AEI Debate when Ryan faced off with New York Times Columnist David Brooks on the question “How Much Government Is Good Government?”

The debt-ceiling debate raised deeper questions of the moral dimension to the budget battle. AEI President Arthur Brooks expanded upon this in The Wall Street Journal:

If reformers want Americans to embrace real change, every policy proposal must be framed in terms of self-realization, meritocratic fairness and the promise of a better future. Why do we want to lower taxes for entrepreneurs? Because we believe in earned success. Why do we care about economic growth? To make individual opportunity possible, not simply to increase wealth. Why do we need entitlement reform? Because it is wrong to steal from our children.

CHRIS CHRISTIE

On the touchy subject of entitlement reform, New Jersey Gov. Chris Christie came to AEI in February to discuss his big plans for cutting spending to restore fiscal health and fuel long-term growth:

CHART-TOPPERS

Vincent R. Reinhart, an AEI scholar and former director of the Federal Reserve Board’s Division of Monetary Affairs, asked a simple question with a complex answer: “Is the U.S. Economy Freefalling?”

An economy not generating much momentum is less resilient to adverse shocks. And with the current backdrop of multiple European governments teetering on the brink of default, investors still backpedalling from risk, and US politicians itching for the next fight, adverse shocks loom especially ominous. That said, firms have liquid balance sheets and equity markets are providing remarkably high earnings relative to their prices. Economic expansion could be rejuvenated, but it will likely have to come from within, as US policymakers are unlikely to provide a spark from outside. Netting across the various risks and factoring in this policy inertia, the chance that the economy slips into another recession within a year is about four in ten.

Kevin A. Hassett and Aparna Mathur graded the effectiveness of corporate tax rates, and found that the U.S. gets a failing grade:

At 35 percent, the US statutory corporate tax rate is the highest among all the countries in the Organization for Economic Cooperation and Development (OECD). Since the 1980s, other OECD economies have been steadily lowering their tax rates, but the United States has not cut its top statutory rate since 1993. In the OECD, the United States also has higher-than-average effective average and effective marginal tax rates, which are the best indicators for capital investors of their true tax liability. Policymakers seeking to understand why some companies are moving plants abroad should consider the impact of tax rates on competitiveness. The Obama administration and the 112th Congress should lower effective tax rates so the United States can compete in the global economy.